The boom in artificial intelligence (AI) is shaking up the technology industry, creating new winners and leaving others behind. International Business Machines (IBM 0.60%) And Cisco systems (CSCO 0.42%) It certainly seemed like they had missed the boat on AI in recent years, but now both companies have AI strategies that are on track to generate billions in annual revenue.

International Business Machines

Not every company can integrate ChatGPT into their employee or customer applications and call it a day. Large companies and organizations must deal with regulatory and compliance concerns, protect proprietary and customer data, and ensure they don’t harm their brand with a rogue AI agent.

The latest and greatest large language models grab most of the headlines, but IBM plays an important and potentially lucrative role in delivering generative AI technology to its enterprise customers. The company’s Watsonx platform emphasizes transparency and governance, and its extensive consulting business provides the advisory and implementation services clients need to realize the value of AI.

Imagine a financial institution that uses decades-old, mission-critical and highly sensitive mainframe code written in a now-obscure programming language. If that financial institution wants to modernize that code using AI, it needs a partner it can trust with its code. IBM and its Watsonx Code Assistant are an obvious choice.

It’s taken IBM a long time to turn its decades of AI experience into a viable business, but now the company appears to have cracked the code. Since launching the Watsonx platform about a year ago, IBM has booked over $2 billion in deals, with three-quarters of those coming from consulting contracts. That number is likely to grow at a solid rate as companies increasingly adopt AI technology.

IBM stock is now approaching its all-time high after years of underperformance. With the stock trading at 15 times forward free cash flow, it’s not too late to buy the stock.

Cisco systems

Cisco remains the dominant leader in enterprise switching and routing, but large cloud companies are increasingly choosing alternatives for their networking needs. By the end of 2022, original design manufacturers had captured about half of the hyperscale data center switch market. Arista Networks was in second place with a 30% share and Cisco came in a distant third with a market share of only 10%.

This situation is particularly problematic for Cisco because it is the hyperscalers that are buying up AI accelerators and building massive AI data centers. The company has made some changes in recent years by driving disaggregation and removing the tight coupling between hardware and software. Hyperscalers have unique networking requirements that are often not met by fully integrated solutions.

Cisco is starting to see some benefits from its strategy shift. In the company’s most recent quarter, product orders from hyperscalers were growing in the double digits, helping to push cumulative AI orders past $1 billion last quarter. Three of the top four hyperscalers are deploying the company’s Ethernet AI fabric, and the company expects an additional $1 billion in AI product orders in fiscal 2025.

These AI orders will contribute to the company’s expected revenue of $55 billion to $56.2 billion in fiscal 2025, along with adjusted earnings per share between $3.52 and $3.58. With Cisco stock trading at 14 times expected earnings, investors shouldn’t ignore this old-fashioned tech giant.